Dollar’s strong rally puts Bitcoin’s $25,000 breakout prospects in jeopardy

Bitcoin (BTC) investors reeling from the shock of recent cryptocurrency company failures and banking woes may face another potential problem: a recovering U.S. dollar.

The strength of the US dollar is re-emerging

Notably, the U.S. dollar index ( DXY ), which tracks the greenback’s performance against a basket of top foreign currencies, has risen 4% from a Feb. 3 low of 100.82 amid expectations that the Federal Reserve will continue to raise benchmark interest rates to cool inflation . .

Inflation persists

Caution remains as recent US data shows a recession is not yet imminent.

That includes the latest jobless claims, which fell 2,000 to a seasonally adjusted 190,000 in the week ended Feb. 25, and stronger spending in January.

Meanwhile, 90% of US producers surveyed by Bloomberg complained about rising input prices despite supply chain easing.

Although the problem is not as severe as during the pandemic, the survey shows that inflationary pressures have not gone away despite the Fed’s aggressive rate hikes.

“Recent data suggest that consumption is not slowing much, that the labor market continues to run unsustainably warm, and that inflation is not falling as quickly as I thought,” noted Fed Governor Christopher Waller, adding:

“If these data reports continue to come in too hot, the policy target range will need to be raised even more this year.”

Bank of America Global Research expects the Fed to raise interest rates to nearly 6% from the current range of 4.5-4.75%. Theoretically, that should renew investor demand for the dollar by putting downward pressure on “risky” assets like Bitcoin.

DXY chart paints inverse head-and-shoulders

From a technical perspective, the US Dollar Index looks set to rise by more than 4.5% over the coming months due to the formation of a classic bullish reversal pattern.

Called the inverse-head-and-shoulders (IH&S), the pattern develops when price forms three bottoms below a common resistance line (neckline), with the middle bottom (head) deeper than the other two (left and right shoulders).

An IH&S pattern resolves after the price breaks above the neckline and rises by as much as the maximum height between the pattern’s lowest level and the neckline.

If the dollar index succeeds in breaking above the neck of 105.25, the likelihood of an extended rally towards 109.75 in 2023 will be higher.

Bitcoin Price To Retest $20K?

The stronger dollar outlook comes as Bitcoin bulls fail to sustain the price rally by breaching the $25,000 technical resistance level. BTC price has fallen by around 13% since with macro headwinds as one of the main reasons.

In addition, concerns about Silvergate and potential consequences for the industry have also kept the price in check in recent days.

Related: Bitcoin price tumbles 5% in 60 minutes amid Silvergate uncertainty

“Any liquidity concerns will have a direct impact on market conditions and could affect access to and availability of some client funds,” warned John Toro, head of trading at digital-asset exchange Independent Reserve.

Technically, Bitcoin has maintained its short-term bullish bias by holding strongly above the two key exponential moving averages (EMA): the 50-day EMA (red) near $22,500 and the 200-day EMA (blue) near $21,770.

However, traders should watch for a potential break below the EMAs – which combined with rising prices and further negative news – could see BTC price retest the key $20,000 level in the coming weeks.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.